HMRC has issued guidance on tax avoidance schemes, advising on partnership follower notices and accelerated partner payments as well as including information on penalties for late payments
Legislation on tax avoidance schemes allows HMRC to get an upfront payment of the disputed tax and/or National Insurance Contributions (NICs) which is held, to allow the rate at which disputes about avoidance schemes are settled.
Tax legislation affecting those who have used a tax avoidance scheme was introduced on 17 July 2014, which was the extended on 12 April 2015 to cover NICs.
When a ruling is made that an avoidance scheme does not achieve the tax or NICs advantage the legislation allows HMRC to issue a partnership follower notice.
A partnership follower notice tells the partnership that each relevant partner will be liable to pay a penalty if the partnership doesn’t settle its dispute with HMRC.
A partner which has used an avoidance scheme may have to make an accelerated partner payment which is the amount that relates to their use of that scheme before the final amount has been agreed, or determined by a tribunal or court.
If the partnership disagrees with the partnership follower notice they can make representations to HMRC if:
- Conditions A, B or D has not been met (Condition A – there is a current compliance check into the partnership return, or there is an open appeal, Condition B – the partnership return or appeal is made on the basis that there is a particular tax advantage resulting from the partnership’s chosen arrangements, Condition D – we have not previously sent the representative partner, or their successor, a partnership follower notice for the same scheme, the same tax advantage, the same tax period, and the same final judicial ruling)
- the final court or tribunal ruling specified in the notice is not relevant to the tax avoidance scheme that the partnership used
- they received the notice after the deadline for us sending it to them
The total amount of the penalty for not taking corrective action on time is equal to 20% of the value of the denied advantage. The value of the denied advantage is calculated by reference to the amount by which the partnership return would be amended to apply the court or tribunal’s final ruling.
The penalty can be reduced if the partnership has cooperated with HMRC before they send a notice. This involves providing help working out the amount of the tax advantage, counteracting the denied advantage, providing information and giving access to tax records.
However, HMRC cannot reduce the penalty percentage rate to less than 4%.
In December 2015 HMRC withdrew accelerated payment notices (APNs) from hundreds of Montpelier clients who invested in the IR35 tax avoidance scheme, after admitting the notices should not have been issued.
More information on the withdrawal of APNs from Montpelier clients is here.
